Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Martin Marietta Materials, Inc. (the Company or Martin Marietta) is engaged principally in the building materials business, including aggregates, cement, ready mixed concrete and asphalt and paving product lines, collectively reported as the Building Materials business. The aggregates product line is sold and shipped from a network of more than 270 quarries and distribution facilities in 26 states, Nova Scotia and the Bahamas. The cement, ready mixed concrete and asphalt and paving product lines are located in strategic, vertically integrated markets, predominately Texas and Colorado. Building materials are used for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates and cement products are also used in the railroad, agricultural, utility and environmental industries.

Effective January 1, 2017, the Company reorganized the operations and management reporting structure of its Texas-based aggregates, cement and ready mixed concrete product lines, resulting in a change to its reportable segments. As a result, the cement product line is reported in the West Group. The Company’s Building Materials business includes three reportable segments: the Mid-America Group, the Southeast Group and the West Group.

BUILDING MATERIALS BUSINESS
Reportable Segments	Mid-America Group	Southeast Group	West Group
Operating Locations	Indiana, Iowa, northern Kansas, Kentucky, Maryland, Minnesota, Missouri, eastern Nebraska, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia	Alabama, Florida, Georgia, Tennessee, Nova Scotia and the Bahamas	Arkansas, Colorado, southern Kansas, Louisiana, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming

Product Lines	Aggregates	Aggregates	Aggregates, cement, ready mixed concrete and asphalt and paving

Products and Services	Crushed stone, sand and gravel	Crushed stone, sand and gravel	Crushed stone, sand and gravel; Portland and specialty cements; ready mixed concrete and asphalt and paving

The Company has a Magnesia Specialties segment with manufacturing facilities in Manistee, Michigan, and Woodville, Ohio. The Magnesia Specialties segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. Other than the adoption of two new accounting standards described below, the Company has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the six months ended June 30, 2017 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

New Accounting Pronouncements

Share-Based Payment Accounting

Effective January 1, 2017, the Company adopted Accounting Standards Update (ASU) 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which simplifies certain aspects of accounting guidance and requirements for share-based transactions. ASU 2016-09 requires shares withheld for employees’ income tax obligations to be presented as a financing activity in the statement of cash flows, with retrospective presentation. For the six-months ended June 30, 2016, the Company reclassified $2,525,000 from operating activities to financing activities on the statement of cash flows. Additionally, excess tax benefits from stock-based compensation transactions are presented as an operating activity with retrospective presentation. The Company previously presented excess tax benefits from stock-based compensation transactions as a financing activity and, for the six-months ended June 30, 2016, reclassified $3,948,000 to operating activities on the statement of cash flows. ASU 2016-09 also requires excess tax benefits and tax deficiencies to be recognized prospectively as income tax benefits or expense in the period awards vest or are exercised. For the three- and six-months ended June 30, 2017, the Company recognized excess tax benefits of $2,989,000 and $5,259,000, respectively.

1.	Significant Accounting Policies (continued)

New Accounting Pronouncements

Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which revises the financial statement presentation for periodic pension and postretirement expense or credit, other than service cost. ASU 2017-07 requires net periodic benefit cost or credit, with the exception of service cost, to be presented retrospectively as nonoperating expense. As permitted by ASU 2017-07, the Company used the pension and other postretirement benefit plan disclosures for the prior comparative periods as a practical expedient to estimate amounts for retrospective application. Service cost will remain a component of earnings from operations and represent the only cost of pension and postretirement expense eligible for capitalization, notably in the Company’s inventory standards. The Company early adopted this standard effective January 1, 2017. For the three-months ended June 30, 2016, the Company reclassified $730,000, $1,728,000 and $648,000 from cost of sales; selling, general and administrative expenses; and other operating income and expenses, respectively, to nonoperating expense. For the six-months ended June 30, 2016, the Company reclassified $1,346,000, $3,240,000 and $774,000 from cost of sales; selling, general and administrative expenses; and other operating income and expenses, respectively, to nonoperating expense.

Pending Accounting Pronouncements

Revenue Recognition Standard

The FASB issued an accounting standards update that amends the accounting guidance on revenue recognition. The new standard intends to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The new standard is effective January 1, 2018 and can be applied on a full retrospective or modified retrospective approach. The Company has completed its initial assessment of the provisions of the new standard and, at this time, does not expect the impact to be material to its results of operations and expects to adopt using the full retrospective approach.

Lease Standard

In February 2016, the FASB issued a new accounting standard, Accounting Codification Standard 842 – Leases, intending to improve financial reporting of leases and to provide more transparency into off-balance sheet leasing obligations. The guidance requires virtually all leases, excluding mineral interest leases, to be recorded on the balance sheet and provides guidance on the recognition of lease expense and income. The new standard is effective January 1, 2019 and must be applied on a modified retrospective approach. The Company is currently assessing the impact of the updated standard on the Company’s financial statements. The Company believes the updated standard will have a material effect on its balance sheet but has not quantified the impact at this time.

Reclassifications

Prior-year information has been reclassified to conform to the presentation of the Company’s current reportable segments and for the adoption of the two accounting pronouncements aforementioned.

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss

Consolidated comprehensive earnings/loss and accumulated other comprehensive loss consist of consolidated net earnings or loss; adjustments for the funded status of pension and postretirement benefit plans; foreign currency translation adjustments; and the amortization of the value of terminated forward starting interest rate swap agreements into interest expense, and are presented in the Company’s consolidated statements of earnings and comprehensive earnings.

Comprehensive earnings attributable to Martin Marietta is as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016
	(Dollars in Thousands)
Net earnings attributable to Martin Marietta Materials, Inc.	$	142,279	$	122,052		$	184,613	$	167,047
Other comprehensive earnings (loss), net of tax		2,519		(2,235	)		4,781		(446	)
Comprehensive earnings attributable to Martin Marietta Materials, Inc.	$	144,798	$	119,817		$	189,394	$	166,601

Comprehensive earnings attributable to noncontrolling interests, consisting of net earnings and adjustments for the funded status of pension and postretirement benefit plans, is as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2017			2016		2017			2016
	(Dollars in Thousands)
Net (loss) earnings attributable to noncontrolling interests	$	(38	)	$	61	$	(65	)	$	122
Other comprehensive earnings, net of tax		1			2		2			33
Comprehensive (loss) earnings attributable to noncontrolling interests	$	(37	)	$	63	$	(63	)	$	155

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

Changes in accumulated other comprehensive earnings (loss), net of tax, are as follows:

	(Dollars in Thousands)
							Unamortized
							Value of
							Terminated			Accumulated
	Pension and						Forward Starting			Other
	Postretirement			Foreign			Interest Rate			Comprehensive
	Benefit Plans			Currency			Swap			Loss
	Three Months Ended June 30, 2017
Balance at beginning of period	$	(126,463	)	$	(1,025	)	$	(937	)	$	(128,425	)
Other comprehensive earnings before reclassifications, net of tax		—			389			—			389
Amounts reclassified from accumulated other comprehensive earnings, net of tax		1,910			—			220			2,130
Other comprehensive earnings, net of tax		1,910			389			220			2,519
Balance at end of period	$	(124,553	)	$	(636	)	$	(717	)	$	(125,906	)

	Three Months Ended June 30, 2016
Balance at beginning of period	$	(101,907	)	$	(149	)	$	(1,777	)	$	(103,833	)
Other comprehensive loss before reclassifications, net of tax		(3,736	)		(232	)		—			(3,968	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		1,529			—			204			1,733
Other comprehensive (loss) earnings, net of tax		(2,207	)		(232	)		204			(2,235	)
Balance at end of period	$	(104,114	)	$	(381	)	$	(1,573	)	$	(106,068	)

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

	(Dollars in Thousands)
							Unamortized
							Value of
							Terminated			Accumulated
	Pension and						Forward Starting			Other
	Postretirement			Foreign			Interest Rate			Comprehensive
	Benefit Plans			Currency			Swap			Loss
	Six Months Ended June 30, 2017
Balance at beginning of period	$	(128,373	)	$	(1,162	)	$	(1,152	)	$	(130,687	)
Other comprehensive earnings before reclassifications, net of tax		—			526			—			526
Amounts reclassified from accumulated other comprehensive earnings, net of tax		3,820			—			435			4,255
Other comprehensive earnings, net of tax		3,820			526			435			4,781
Balance at end of period	$	(124,553	)	$	(636	)	$	(717	)	$	(125,906	)

	Six Months Ended June 30, 2016
Balance at beginning of period	$	(103,380	)	$	(264	)	$	(1,978	)	$	(105,622	)
Other comprehensive loss before reclassifications, net of tax		(3,830	)		(117	)		—			(3,947	)
Amounts reclassified from accumulated other comprehensive earnings, net of tax		3,096			—			405			3,501
Other comprehensive (loss) earnings, net of tax		(734	)		(117	)		405			(446	)
Balance at end of period	$	(104,114	)	$	(381	)	$	(1,573	)	$	(106,068	)

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

Changes in net noncurrent deferred tax assets recorded in accumulated other comprehensive loss are as follows:

	(Dollars in Thousands)
	Pension and Postretirement Benefit Plans			Unamortized Value of Terminated Forward Starting Interest Rate Swap			Net Noncurrent Deferred Tax Assets

	Three Months Ended June 30, 2017
Balance at beginning of period	$	80,859		$	608		$	81,467
Tax effect of other comprehensive earnings		(1,184	)		(144	)		(1,328	)
Balance at end of period	$	79,675		$	464		$	80,139

	Three Months Ended June 30, 2016
Balance at beginning of period	$	65,523		$	1,159		$	66,682
Tax effect of other comprehensive earnings		1,408			(136	)		1,272
Balance at end of period	$	66,931		$	1,023		$	67,954

	Six Months Ended June 30, 2017
Balance at beginning of period	$	82,044		$	749		$	82,793
Tax effect of other comprehensive earnings		(2,369	)		(285	)		(2,654	)
Balance at end of period	$	79,675		$	464		$	80,139

	Six Months Ended June 30, 2016
Balance at beginning of period	$	66,467		$	1,290		$	67,757
Tax effect of other comprehensive earnings		464			(267	)		197
Balance at end of period	$	66,931		$	1,023		$	67,954

1.	Significant Accounting Policies (continued)

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

Reclassifications out of accumulated other comprehensive loss are as follows:

	Three Months Ended						Six Months Ended						Affected line items in the consolidated
	June 30,						June 30,						statements of earnings and
	2017			2016			2017			2016			comprehensive earnings
	(Dollars in Thousands)
Pension and postretirement benefit plans
Settlement charge	$	—		$	—		$	—		$	59
Amortization of:
Prior service credit		(358	)		(518	)		(716	)		(806	)
Actuarial loss		3,452			3,007			6,905			5,787
		3,094			2,489			6,189			5,040		Nonoperating expenses
Tax benefit		(1,184	)		(960	)		(2,369	)		(1,944	)	Taxes on income
	$	1,910		$	1,529		$	3,820		$	3,096

Unamortized value of terminated forward starting interest rate swap
Additional interest expense	$	364		$	340		$	720		$	672		Interest expense
Tax benefit		(144	)		(136	)		(285	)		(267	)	Taxes on income
	$	220		$	204		$	435		$	405

Earnings per Common Share

The numerator for basic and diluted earnings per common share is net earnings attributable to Martin Marietta Materials, Inc. reduced by dividends and undistributed earnings attributable to certain of the Company’s stock-based compensation. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Company’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three and six months ended June 30, 2017 and 2016, the diluted per-share computations reflect a change in the number of common shares outstanding to include the number of additional shares that would have been outstanding if the potentially dilutive common shares had been issued.

1.	Significant Accounting Policies (continued)

Earnings per Common Share

The following table reconciles the numerator and denominator for basic and diluted earnings per common share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
	(In Thousands)
Net earnings attributable to Martin Marietta Materials, Inc.	$	142,279	$	122,052	$	184,613	$	167,047
Less: Distributed and undistributed earnings attributable to unvested awards		413		519		553		730
Basic and diluted net earnings available to common shareholders attributable to Martin Marietta Materials, Inc.	$	141,866	$	121,533	$	184,060	$	166,317

Basic weighted-average common shares outstanding		62,858		63,532		62,961		63,845
Effect of dilutive employee and director awards		283		270		285		246
Diluted weighted-average common shares outstanding		63,141		63,802		63,246		64,091